Research by: Deepak K. Datta, Dynah A. Basuil, & Ankita Agarwal
Executive Summary
Do boards matter in influencing company performance? Research recently published in the International Business Review (AGJ 3) by Dr. Dynah A. Basuil and collaborators, Dr. Deepak K. Datta and Ankita Agarwal, found that boards do make a difference. Particularly when undertaking strategic initiatives that are resource-intensive with high failure rates such as cross-border acquisitions, manufacturing acquiring firms tend to exhibit better performance when they have boards of a specific size, leadership structure, and outside director composition.
Their study examines how acquiring firm board characteristics influence the performance of cross-border merger and acquisitions (CBMAs). It is based on a sample of 250 large transactions in the manufacturing sector undertaken by U.S. firms in 33 countries between 1991 and 2006. Their findings reveal that acquiring firms having a larger board and outside directors with greater influence exhibit superior post-acquisition shareholder value creation in CBMAs. In addition, their results indicate that acquiring firms with more dominant CEOs perform better in such acquisitions. From the standpoint of firms engaged in CBMAs, their findings suggest that they stand to benefit from having a larger board and influential outside directors who can diligently monitor and advise top management in undertaking CBMAs. Finally, acquiring firms need to recognize that the complexities and challenges generally associated with CBMAs may require dominant CEOs who can provide clear and unambiguous leadership during the pre- and post- acquisition process.
Besides theoretical developing arguments that explain the role of board structures in influencing post-acquisition CBMA performance, this study from an empirical perspective, broadens our understanding of how board attributes (namely, board composition, board size, outside director influence, and CEO dominance over the board) impact CBMA outcomes. Additionally, in assessing post-acquisition CBMA performance, the study used a different approach from that used in much of the CBMA literature. The buy-and-hold abnormal returns (BHAR) methodology used in their study enables assessment of value creation in the year following the acquisition completion date. This approach, which overcomes some of the limitations associated with traditional event study methodology, was pioneered in the area of finance. However, more recently, it has been used in other areas of business, including strategic management (Patel & Cooper, 2014) and international business (Basuil & Datta, 2015). Finally, from a managerial perspective, the authors expect their findings to have important implications for firms engaged in CBMAs by providing them a better understanding of how board composition and characteristics can enable or hinder CBMA value creation.
To cite this article: Datta, D. K., Basuil, D. A., & Agrawal, A. (2020). Effects of board characteristics on post-acquisition performance: A study of cross-border acquisitions by firms in the manufacturing sector. International Business Review, 29(3), 101674. https://doi.org/10.1016/j.ibusrev.2020.101674.
To access this article: https://doi.org/10.1016/j.ibusrev.2020.101674
About the Journal
The International Business Review provides a forum for academics and professionals to share the latest developments and advances in knowledge and practice of international business. It aims to foster the exchange of ideas on a range of important international subjects and to provide stimulus for research and the further development of international perspectives. The international perspective is further enhanced by the geographical spread of the contributors.
Articles, all of which are refereed, comprise: empirical studies with practical application; examinations of theoretical and methodological developments in the field of business studies; and reviews of the literature in international business.
SJR: 79 | ABS: 3
